Brexit and the mobile market

What might Brexit mean for the mobile network sector in Europe and the UK? We don't know yet.

If there is Brexit, what then? With UK voters heading to the polls tomorrow, TMN looks at what some industry figures think could be the impact of Brexit on the mobile network tech sector.

UPDATE: 23 June: Some interesting comments came in overnight from Carsten Brinkschulte, CEO of Core Network Dynamics. Mobile core network software start-up Core Network Dynamics (CND) is a European company with customers around the globe and a diverse employee base. Although CND is not a British company, the CEO, Carsten Brinkschulte, originally from Germany, has lived in the UK for 10 years and previously ran two British technology startups (Synchronica PLC, an AIM listed messaging company and Movirtu, which was sold to Blackberry in 2014).

Here are Brinkschulte’s comments – note that the company’s plans to expand into and relocate to the UK are currently on hold.

“CND’s headquarters are currently in Berlin, but, with future expansion and venture capital investment in mind, CND has plans to setup a sales and marketing focused subsidiary in the UK, owing to better access to international and experienced telecoms sales professionals in London compared to Berlin. In the longer term, CND has also been considering a listing on the London Stock Exchange (AIM) and relocating its headquarters to London.

“With the threat of Brexit looming, CND’s plans to expand in the UK have been put on hold and, if the UK leaves the EU, they will be shelved. Freedom of movement in the EU is vital to enable fast growing businesses to hire specialised and experienced staff .

“From a taxation and legislation perspective (e.g. Export/import regulation in the telecommunications sector), having a common framework across the EU significantly simplifies CND’s access to a large market; resource constrained start-ups can find it challenging to deal with the complexity and variety of import/export regulations, the withholding of taxes and other barriers existing in international trade.

“With Britain outside of the EU, CND would face the uncertainty of complex import/export barriers to the EU and most likely restrictions on its abilility to recruit specialised telecom staff living abroad. It is also unclear what the impact of Brexit would have on the vibrant venture capital and small cap (AIM) market in London, which CND considers to be a major attraction in its plans to relocate its headquarters to London. Restricted requirements, more complicated exports and a potential reduction of investment potential would certainly put CND’s London plans on ice indefinitely.”

ORIGINAL ARTICLE FOLLOWS:

1. The operator: VODAFONE

As you might expect of an Italian CEO running a global operator with the vast bulk of its business in Europe, Vodafone CEO Vittorio Colao is firmly for Remain. However, instead of defining this in “what’s good for Vodafone” terms, Colao told the BBC it would be a missed opportunity for Britain if the country “tried to sit outside” the EU.

He said Britain could participate, but not help write the rules, if it were not in the EU and this would be sad because although the UK has already missed out on the manufacturing boost that Germany gained from the EU, “the next big opportunity is in digital. Britain is particularly strong in digital, and it would be a missed opportunity if it tried to sit outside,” he told the BBC’s Today programme.

Mr Colao said Britain would not be able to influence important decisions on copyright, e-commerce and cyber security.

Mr Colao also hinted that FTSE 100 companies such as Vodafone could move their headquarters out of Britain if it left the EU. He said Vodafone was very happy here, but it would have to reconsider its position if the free movement of people and capital was restricted.

2 The Vendor:

Nokia’s CEO Rajeev Suri is another global player with a strong European presence, and of course plenty of UK customers and employees. He issued a strong plea for the UK to remain engaged in Europe, as it would be better for Europe and the UK itself.

The uncertainty that Brexit would cause would delay further much-needed impetus in market and regulatory reform. “While the EU played an early and critical role in liberalising and standardising the telecom market, that initial momentum has since stalled. Reform is urgently needed to allow for the development of networks that match those of other parts of the world.” This is usually code for, “allow consolidation, and operators invest more”.

“Given this,” Suri continued, “I am of the firm belief that we need both more Europe as well as a different European Union. More Europe is needed to fully leverage the power of the single market, to allow innovation and capital to flow freely, to give businesses the opportunity to consolidate and scale efficiently across all of Europe, and for consumers to get the benefits of that scale. A different European Union is also needed, one that focuses more on enabling and less on controlling; on what really benefits all the people of Europe, not items best left to national discretion.”

You can assume that a Europe with no UK in it would not be a positive for Nokia.

3. The lawyer

Some of what may come to pass post-Brexit is of course a matter of second guessing any negotiated exit. Lawyer Bird & Bird said that the legal implications of Brexit if it happens, “will depend to a large degree on the withdrawal arrangements and conditions agreed upon between the UK and the EU”. Indeed so.

How things work at the moment is that EU Directives comprise the Regulatory Framework, and these are transposed into UK law by Communications Act 2003 and Wireless Telegraphy act 2006, amongst other regulation. If there’s Brexit then the UK would be free to change laws originally introduced in accordance with EU Directives.

The issues addressed under the Regulatory Framework range from mandating telecommunications network access, to radio spectrum management, and to data privacy, number portability and consumer access to emergency services.

Bird & Bird think Brexit is unlikely to give rise to any immediate consequences, however, as the Regulatory Framework has already been transposed into UK law through national legislation. This national legislation would continue to be valid and applicable following a UK exit.

Anything yet unfinished of course would not have to be implemented: it is possible that the reforms that come out of the review of the Regulatory Framework currently being undertaken as part of the Digital Single Market (DSM) initiative will not be implemented into UK law, or that they will not be maintained in UK law following a Brexit.

Roaming

“Another important consequence of a Brexit would be that UK consumers would no longer be able to benefit from the Roaming Regulation in respect of their use of international roaming services, when travelling within the EU. The flip side, of course, is that, in such a scenario, UK operators would also no longer be subject to regulated roaming tariffs at the wholesale level. There has been speculation that the UK might, post-Brexit, introduce UK legislation with the purpose of ensuring as far as possible a parallel roaming regime in the UK to that applying in EU Member States under the Roaming Regulation.”

Spectrum

Bird & Bird said that following Brexit, the UK would no longer be subject to Commission decisions and initiatives on the harmonisation of spectrum allocations and use across the EU. It will, however, continue to cooperate with other Member States on some of these issues through membership of other organisations, including the European Conference of Telecommunications and Postal Administrations or CEPT.

Tegulatory divergence between the UK and the EU following Brexit could, for example, arise in respect of the regulation of OTT services. The UK may be likely to take a more liberal approach towards these services than the Commission or certain other national regulatory authorities. The UK may also be likely to favour a more pro-investment policy on regulation than certain other Member States, according to Bird & Bird.

UK no longer a market springboard into Europe

Bird & Bird said: “Companies from outside of the EU that are considering doing business in the UK and/or the EU sometimes choose the UK as a stepping stone or “springboard” into the greater EU-wide market.

“From a compliance perspective, this strategy can be particularly effective in a regulated environment, such as the market for electronic communications. The harmonisation of telecommunications regulatory regimes across the EU has meant that a new market entrant in the UK will be subject to broadly similar regulatory requirements anywhere in the EU.

“Brexit would, for obvious reasons, undermine the rationale for using the UK as a springboard into the greater EU-wide market. This is because of the loss of the EU “passport” to the EU internal market that has been available through establishment in the UK and compliance with EU requirements in the UK as a Member State.”

4. The lawyer, Part II

In a note written as early as January 2016, Law firm SHEPHERD + Wedderburn said that electronic communications in the UK are, at present, very much entwined in a larger European context of policy and regulation, and it may prove very difficult to untangle from this in the formation of a new stand-alone telecommunications framework should the UK leave the EU.

However, if there was a Brexit Ofcom “may also seek to review mobile markets other than ‘mobile termination.” This would allow Ofcom to examine mobile access markets and potential remedies, a significant departure from current EU policy. That said – with the O2-3 UK deal now off the table there seems less need for Ofcom to take that approach, given it still has its chief pro-competition goal of four national operators.

Additionally, were the UK to leave the EU, the current control of, and policy on, spectrum and spectrum harmonisation is unlikely to change in any meaningful way. Spectrum is currently a national competence in which Ofcom is guided by decisions and recommendations at an EU and international level, for example from the Electronic Communications Committee (ECC) of the European Conference of Postal and Telecommunication Administrations (CEPT) at a European level, and the International Telecommunication Union (ITU) at an international level. Given the desire, globally, to harmonise spectrum allocation, it is not expected that the UK would depart in a significant way from the guidance of these international organisations.

5. The rest of Europe may suffer from vindictive regulators – it’s not clear why

Industry consultant John Strand says that Brexit will lead to more regulation for remaining countries. Why – well it doesn’t really seem connected to Brexit, just that Strand thinks this is the prevailing direction of travel.

“We believe that the EU will take steroids and turbocharge the regulation related to telecommunications. Net neutrality is in focus now, and soon it be on privacy, as the EU will push for tougher regulation and enforcement on the Internet companies that live by our data.

We have absolutely no doubt that the BREXIT vote will result in increased regulation of the telecommunications industry in the EU and that the regulation will spread to other parts of the world. When we look at net neutrality, it has become a global epidemic among regulators as they take a vacation from the economic and market analysis that is the heart of telecom regulation.”

It’s quite hard to tell but Strand’s chief argument seems to be that the EU has used Roaming fees as a flag to wave, so that it can proclaim its effectiveness for consumers. Post-Brexit, this faux pro-consumer zeal would be reinforced and transferred to other targets. It’s not clear what Brexit would give the Commission more desire to punish the remaining 27 countries with this errant regulatory regime.

Conclusions

So that’s a quick round-up. In summary – a lot would depend on what is negotiated in terms of freedom of movement, on access to the free market and so on. While Brexit could leave room for some tinkering around regulation of services – roaming and spectrum rules could in theory become “British” in definition – but the likelihood is that for market reasons these would in reality roughly mirror European approaches in any case.

Bird and Bird see that inward investment to the UK sector could suffer as companies do not see the attraction of the UK as a springboard, and Colao says that the UK’s “digital” sector could suffer by missing out on potential benefits of being in the EU market.

In Suri’s view Europe would be diminished by Brexit, and this in turn diminishes Europe’s ability to reform its digital and telco markets, and stimulate investment.

TMN did ask network vendors and suppliers what they thought the impact of Brexit could be on their businesses. Would it impact on their export/import to the UK and Europe? For countries based in the UK, were they worried about their ability to to recruit and attract talent, and to attract investment? And nobody seemed to know for sure what they thought, or at least if they were they were not willing to comment publicly. Off the record there was certainly concern about the impact on UK-based companies, and for those companies with significant UK operations. UK businesses in the digital and tech sector have almost all been pro-Remain, signing letters and the like urging a Remain vote. The EU single market, take note, accounts for half Britain’s foreign trade, and these tech companies want access to it . For now, though, like everyone else, the industry simply has to wait on the decision of the people.